Editorial: GM on the rebound?

Thursday

Apr 29, 2010 at 12:01 AMApr 29, 2010 at 1:20 AM

General Motors and President Barack Obama had good reason to trumpet last week's announcement that GM had repaid $6.7 billion in government loans issued a year ago when the nation's largest automaker teetered on the brink of dissolution. GM wants investors and auto buyers to know the company is on the rebound. Obama wants credit for a controversial intervention in the economy.

General Motors and President Barack Obama had good reason to trumpet last week's announcement that GM had repaid $6.7 billion in government loans issued a year ago when the nation's largest automaker teetered on the brink of dissolution. GM wants investors and auto buyers to know the company is on the rebound. Obama wants credit for a controversial intervention in the economy.

To say GM is out of the woods is a huge overstatement. At least some of the money repaid comes from TARP funds in effect, the government paying the government back. Besides, the repayment represents barely 10 percent of the public investment in the companies made by the U.S. and Canadian governments. The rest of the bailout is secured by equity in the company, with some 72 percent of GM now owned by the two governments. That money will be returned only if and when GM can sell enough new stock to buy back the government shares.

Still, $6.7 billion is nothing to sneeze at, and the fact that the debt was repaid, with interest, four years ahead of schedule, sure beats the alternative. There seems to be broad agreement that GM is running ahead of its business plan even if it is still operating at a loss.

This is especially good news if you consider what might have happened without the federal bailout. Obama argues that if the government had not provided the funds, provided on condition GM and Chrysler go through a streamlined bankruptcy guided by administration appointees, the automakers would have gone belly-up, their assets liquidated. Between automakers and their suppliers, as many as a million people would have been thrown out of work at a moment when the economy was hemorrhaging jobs.

"Creative destruction" is the genius of capitalism, and, given Detroit's track record, one can argue that GM and Chrysler deserved to die and be replaced by something new and different. In theory, and in the long run, that may be true. In the short run, an auto industry collapse in early 2009 would have been an economic disaster.

Even with the government intervention, the economic disruption has been considerable. Bondholders lost money, stockholders lost money, unions made concessions and took risks. Taxpayers took risks and may never be fully paid back.

And that was just before the government takeover. Since then, there's been more disruption: plants shuttered, jobs moved overseas, top executives fired, hundreds of dealerships closed. Familiar brands were consigned to history: Pontiac, Hummer, Saturn, Saab. But GM and Chrysler got breathing room from the bailout, some help from the Cash for Clunkers program, a boost from the woes that have befallen Toyota and they appear to be coming back.

Obama is still being slammed as a "socialist" for intervening in Detroit's crisis, by people unlikely to give him credit even if GM and Chrysler return to profitability. Others give him credit just for trying. But the political fallout won't fully settle until GM and Chrysler are out of the woods and the government is no longer in the auto manufacturing business.

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